April 21, 2015
Mike Hargrave

Is Private Equity Becoming More Competitive?

Coming out of the great recession, Health Care REITs have generally enjoyed a cost of capital advantage over other forms of capital. This has played out in the Revista transaction stats as REITS purchased over $5 Billion of medical office buildings in 2014. This represented 70% of the overall buying volume.

The public health care REITs have been buoyed by yield investors who have fled from ultra-low treasury and other bond yields. This has been one reason borrowing rates for REITS have been historically low leading to a long term cost of capital advantage. Other forms of capital, banks in particular, had been slow to pick up lending. This has impacted private equity which has not enjoyed the same cost of capital advantage – but is that changing?

A recent report from the OCC  shows that commercial and industrial (C&I) loans are leading the growth in bank lending and that real estate and healthcare loans are among the fastest growth categories of C&I loans.  The report also suggests that competition among banks and non-bank lenders has increased which has led to a loosening of underwriting terms.  This is important for private equity as that group relies more heavily on bank financing than other groups.

fredgraph-Tightening

Below are a few examples of recent deals involving private equity.

Harrison Street of Chicago is an active MOB buyer. Last year they purchased the Washington Real Estate Investment Trust MOB Portfolio which, in total, comprised about 862,000 square feet of medical office space in the Washington DC area.    Late last year they closed on a new $850 million fund and have purchased several properties this year including the Northwest Specialty Clinics in Springfield Oregon and the Virginia Square Plaza in Arlington, VA.

Bentall Kennedy is a buyer of medical office buildings.  They recently teamed with Multi Employers Property Trust (MEPT) and Leggat McCall to purchase a portfolio of medical buildings from Boston Medical Center (BMC) in an $80 million sale leaseback transaction.  The transaction is part of a strategic positioning and campus consolidation on the part of BMC.

MB Real Estate of Chicago is also an active MOB buyer.   They recently purchased the lakeshore medical campus, a portfolio of 4 medical buildings in Holland, Michigan.  The campus is a value add opportunity for MBRE with occupancy around 60% at the time of sale.

Stay tuned to Revista as we track private equity’s progress in medical real estate.